Q. The broking industry in India is highly fragmented; do you see a need for consolidation in the industry?
A. In broking industry, size is the most critical parameter. Today, the retail broking industry is pretty fragmented with the top ten players accounting for merely a quarter of the market. It is seen that today smaller brokerages are finding it difficult to invest in research and other value-added services and at the same time providing competitive brokerage structure, leading to loss of clients to larger players. With all these parameters in mind, consolidation is the only
prerogative step. This will only ensure better deliveries to the end customer.

Q. What role according to you will the new market segments like currency futures and interest rate futures play
in terms of new sources of revenue?
A. As there have been no currency futures trading in India, companies were hedging their currency risk by entering into forward deals with banks where they agree to sell/buy the dollar at a future date at a predefined exchange rate. This method is less flexible, less liquid and less transparent and it does not help companies fetch the maximum possible price. With the beginning of currency futures exchange we shall see a lot of companies diverting their hedging
towards the exchange for a far better a nd transparent price discovery. With such a scenario in place, we see a lot of potential in this new segment and believe that in near future it shall be a major source of revenue for us. The same argument applies to interest rate futures too. The initial challenge however, would be to provide better information and research in these areas.

Q. At the macro-economic level, what according to you can be done to channelize Indian household savings towards equities? On the micro level, is you company working on initiatives and programs to attract the retail investors?
A. In order to channelize household savings toward equity market, it is essential to educate the retail audience about equity as an asset classs. Retail audience is risk averse and the perception of stock markets in their mind is negative, taking recent downturn into account. They need to however, understand that when a block of 3 years are taken, irrespective of these market gyrations, this asset class is bound to fetch an average return of 18% p.a. when compared
to other assets. We have always been a retail focused broking house. Hence, it becomes our prerogative to educate as much retail audiences as we can to increase their participation into the equity markets. As strong proponents of investor awareness campaigns, we have been successfully organizing campaigns like Investor’s Camp across various parts of India to spread awareness about the equity asset class. We are also planning to introduce few more measures towards this direction.

Q. Do you thing providing proper and timely research to the customers has become one of the integral functions of the broking players or do you still see research as a value added service? What is the other value added services that you provide or intent to provide in order to improve your competitive position?
A. Research can be broadly classified into those that need to be with the customers before the markets open and those that are fundamental in nature and is meant to have a shelf life of at least 6 months since most fundamental recommendations take at least a year to mature. Today, research has become an integral part of the “bundled” service that a premier broking house generally provides. In fact, this is taken for granted now. We had envisaged this scenario way back in 2001 when we set up the research desk at Angel. Customers are far more intellectually able now and are in a position to distinguish brokerages on the basis of quality of research. Therefore, apart from this being a utility service, this also enables customer acquisition.

Q. What according to you can be done to give further impetus to the broking industry? Where do you see the broking industry three years down the line?

A. First and foremost, this broking business should be accorded an “Industry” status and hence, provide a platform through which, it is able to have a say in the economic and industrial affairs of the country. It should be allowed to actively participate in economic and industry forums/bodies. Secondly, this industry should be allowed access to various sources of funds that is typically available to other industry classes. Currently, the sources of raising funds are very limited and finally, make the regulations conducive for consolidation.

Three years is too short a time span though but over a few years from now, we are expecting some serious consolidation taking place, organically or inorganically and eventually, we would see about not more than 10-15 players in the market place. Most of these players would be reasonably capitalized by then, giving them sufficient opportunity to take advantage of the anticipated growth in the investor community.

Q. Do you see the regulator’s decision to arm institutional investors with the Direct Market Facility (DMF) as detrimental to the broking industry?

A. We do not consider this step by the regulators as regressive for the broking industry. On the contrary, this measure would restore confidence among the Financial Institutions. Despite this step, institutional investors will continue to rely on the equity research of these broking houses.

Q. Your views on the emergence of new exchanges like SME, Indian Energy Exchange, MCX-SX etc in the country and how these new exchanges will impact the industry.

A. With the increase in number of exchanges, more and more trading and investment opportunities would get created and in turn, a higher revenue for the broking industry. This would also guard against any monopolistic advantages that an exchange is able to derive currently. This will create more competition thus leading to better and cost effective service and technology to the broking industry.

Q. Is your company planning to enhance its distribution network across the country? What are the key regions that you would look at in order to expand your reach?

A. We strongly believe that apart from inorganic growth, organic growth will continue to play a significant role in enhancing our presence. With this objective in mind, we are intend to set up at least 50 branches this fiscal, on the back of 180 branches already in existence. We intend to take this total number to close to 300 branches. While we are reasonably well spread out across the country, we are keen to enhance our footprint in the Southern and Northern India.

Q. In line with the apparently positive market sentiments, do you see the IPO/primary market making a comeback in the near future (3-6 months)?

A. Equity capital will always remain an economical source of funds for any corporate. We expect the sentiments to significantly turn positive over the next two quarters and therefore, we are expecting a flurry of IPOs hitting the market. The good thing is that during the last 18 months or so, even the regulations have evolved which will, in turn, ensure quality papers being issued in the market.

Q. The financial global turmoil had some impact on most sectors in India. According to you, how badly was the Indian Insurance industry impacted and which are your key business areas that have witnessed a slowdown?

A. The Indian insurance industry has been badly affected by the intense price competition among players since the free pricing, rather than the global financial turmoil. The industry is accepting more risk at a lesser price. In other words the premium charged is not commensurate with the risk profile. This has dragged the growth rate. So though the sum insured in major lines have gone up the premium has drastically shrunk which explains the sluggish growth.

Property line of business was the most affected which witnessed indiscriminate pricing and reached a new low with prices being slashed to over 80% over the erstwhile tariff-based premiums. Motor insurance also was affected due to the falling prices.

Q. Insurance in India is a big opportunity especially with the large population and untapped potential. What according to you are going to be the key growth areas in the near future? Any measures taken by you to ensure vast growth in these segments? Also, what about your efforts in rural India?

A. Insurance penetration in India is still low especially for the non life insurance, with a penetration of 0.60 % as on 2007. Insurance in India offers unlimited growth opportunities as in any other sector.

However in order to capitalise on the growth opportunities, the industry has to grapple with some challenges like –

1. Wide reach to tap the customer base and cost of reaching them at the lowest cost
2. Lesser manpower with right skill set pushes up the management expenses
3. Customers have become discerning and competitive environment landscape

Amidst these challenges the pressure is on companies to do business at a manageable cost.

The major growth drivers would be the retail lines of business such as health, and motor insurance. Additionally new markets and segments would need to be tapped in the rural areas. Bajaj Allianz has over the years developed a pan India presence through its offices and distribution channels to effectively tap all the segments.

Bajaj Allianz General Insurance has enhanced its presence in rural areas by way of wide network of offices and tie-ups with bancassurance partners like regional, rural and co-operative banks.;

Q. In the early years insurance companies face huge cost over runs. How is your company placed with regards to this aspect? What are the other challenges faced by the insurance industry?

A. Expense Management is an issue with all the insurance companies. It has nothing to do with a company being in start-up or well set stage. Most of the companies have completed over 5 years. Bajaj Allianz is focusing on a prudent cost management structure.

The current financial year would be a challenging for the industry due to the shrinkage in premium value and enormous pressure on margins. The pressure on profitability would continue as long as the intense pricing war continues. We hope that some semblance of normalcy is restored at the earliest and price reflects the risk profile.

Q. Higher business growth requires high level of solvency margin and capital infusion on a regular basis is necessary. What are the ways considered by you to inject additional capital? Are there alternatives that you suggest the industry should move towards?

A. The way the market is behaving it seems that hardly anyone would need capital for growth and expansion but one may need capital to offset the poor loss ratio to be profitable. If you see, in the last year, ROE for private insurers were less than 2 1/2 %, whereas for PSU insurers were less than 10%.

Bajaj Allianz was one of the companies that did not require any capital addition in the last financial year 08-09 and Insurance penetration in India is very low especially for non life insurance, with a penetration of 0.60% as on 2007. Insurance in India offers unlimited growth opportunities as in any other sector. The major growth drivers would be the retail lines of business such as health, and motor insurance. Additionally new markets and segments would need to be tapped in the rural areas. In order to capitalise on the growth opportunities, the players needs to greatly enhance their reach and distribution at a manageable cost. has the best capital efficiency in the industry, if one considers the GWP to capital ratio.

As of now Bajaj Allianz seems to be in a strong position in terms of capital efficiency and solvency margin and was the only private insurer to have the highest profit after taxes with Rs.95 crores.

Q. In recent times, the private sector has proved vital in facilitating the sectors growth. What are the measures taken by you to exhibit strong growth amidst the fierce competition?

A. The focus for Bajaj Allianz is and always would remain to achieve balance with growth and profitability. We do not however see growth opportunity in the current market environment.

Q. W hat is your product USP/ strategy that sets apart your company from the rest?

A. The main USP is the wide network of offices, wide products portfolio, services to our customers, transparency in our operations like sharing claims related statistics, annual report, etc.

Q. Growth in the Insurance Industry is largely dependant on product innovation backed by a strong distribution network. How well is your company equipped with this kind of work force/ infrastructure? Do you see some major hiring in the near future (6 months)? What are your expansion plans in terms of number of branches?

A. Going forward growth would come only if the pricing war unleashed ceases. Currently Bajaj Allianz has presence in over 250 major towns and cities in the country with a substantial distribution network in the form of agents and corporate agents.

Bajaj Allianz also has the widest product portfolio in health, travel insurance. We have also tried to offer health insurance product that can be available off-the -shelf by a sub-brand – Bajaj Allianz InstaInsure. Product innovation is a continuous process and we will launch products that are need-based so as to give a wide choice to our customers.

Q. How well has your company tapped the bancassurance channel of distribution? Are there are other new avenues (like online retail of insurance) that you would like to tap in order to enhance your marketing and distribution network?

A. Bajaj Allianz General Insurance has bancassurance relationship with over 100 banks of various hues and culture ranging from public sector banks, foreign banks, private sector banks to the regional and rural development banks. Almost all partners can issue policies from their own location and also get instant MIS. For some of the banks we have developed customised and co-branded products also. This bears a testimony to our status of being the first choice for any banks intending to retail insurance products.

Q. T he government under the IRDA has played a crucial role in the development of the insurance sector over the past decade. However, what according to you should be the predominant change made by the government with respect to its laws in order to provide further impetus to the growth of the insurance industry in India? What medium or long-term issues in the sector do you want that the regulator to address?

A. Some of the issues that IRDA needs to address are as below –

• Follow-up to raise the FDI limit in the sector to have better access to capital for increasing distribution and penetration
• Stress on better and uniform disclosure norms in terms of profitability, claims settlement statistics, etc. in the interest of customers, shareholders and other stakeholders for better benchmarking

Q. W hat are your future plans? How do you perceive the Insurance industry to shape up in the next two years?

A. The slowdown and the pricing war would continue to be the spoilsport for the growth of the industry. We hope that this will be a transient phase of indiscriminate pricing and hope that the normalcy would be restored at the earliest.

Q. What are the key challenges before the Indian banking industry? And what measures should be adopted by the regulators and Banks to overcome them?

A. Following are the key challenges before the banks

• Leveraging technology for business growth.
• Improving Asset Quality
• Augmenting fee income
• Enhancing overall profitability
• Maintenance of Capital Adequacy Ratio
• Integration of Risk management systems
• Grooming, retaining Talent and Succession Planning
• Corporate Governance

Every bank plans out their own strategies to address these challenges to enhance their competitive ability and to provide quality service to customers. The granular components of strategies will be aligned to the individual strengths of the bank. Building a right risk appetite, aggressive positioning in the market, product differentiation, customer centric decision making practices, pursuing ethical values and upholding ‘customer first’ approach in the management of banks are some of the key factors requiring focused attention for a robust business growth.

The regulators from time to time have put in place systemic measures and rigorous internal controls. Banks will have to balance between business interest and staying ahead of prudential standards. The striking strategies for a right trade off between these two factors will be the key business differentiator.

Q. W hat are the key growth drivers for the Indian banking industry? What are the emerging trends in the Indian banking industry?

A. Key growth drivers will be mobilization of low cost deposits. Innovating customized mix of short deposit products to attract more resources at economical cost by using technology will be desirable.

The major focus areas will be financing technology and digitalization, nano-technology projects, IT parks, retail sector, health care, health clubs, lifestyle ventures, development of fashion and design technology, private security services, training and private education, knowledge parks, entertainment industry, travel and tourism. Infrastructure projects such as Express highways, multiple flyovers, bridges, development of waterways, ships and ship building, ports, airports, power, telecommunication and such other projects.

Other focus areas could also be financing agro and agro based food-processing industries. Floriculture, horticulture, processing and export of seafood and organic farming. Financing units generating commercial non-conventional energy such as solar, windmills, energy from recycled waste, projects reducing carbon emission, green projects etc will also be needing attention.

Q. Do you believe that there is a need for consolidation in the Indian Banking industry? What according to you are the merits and demerits of consolidation?

A. The need for consolidation depends on the size, reach and strength of individual bank. As a first step banks are already getting into strategic alliances, entering into collaborations, and partnership with other financial intermediaries, like general insurance, joint venture, life insurance and mutual funds. The obvious merits/demerits of consideration could be as follows:

Merits:

• Better economies of scale in terms of attaining critical business volumes.
• Consolidation of branch network to save costs.
• Better Synergy of skills/talent of employees, more particularly in specialized areas.
• Ability to fund large loans due to larger capital base.
• Better scope to leverage improved technology facilities.

Demerits:

• May create greater concentration of risks posing new set of systemic risks.
• Likely fissures in industrial relations due to cultural differences
• Potent problems in the integration of infrastructure, business processes, delivery channels that may lead to more post merger costs.
• Dissatisfaction among merged entity may bring down productivity
• May lead to complacency of ‘bigness’ making such entities less competitive

Q. W hat role does technology play in your bank in terms of enhancing customer experience, and improving functional efficiencies?

A. Technology has changed the face of banking, more particularly in the last five years. We are now fast cruising towards virtual banking. The visible benefits of IT in day-to-day banking are quite well known. There is ‘Anywhere banking’ through core banking systems, ‘Anytime Banking’ through Automated Teller Machines (ATMs), and Net and Mobile banking in some banks. In addition, IT has enabled the efficient, accurate and timely management of the increased transaction volume that comes with a larger customer base.

The onset of new Core Banking concept to a great extent emerged as a centralization process. The Banks have also undergone a massive change in terms of improvement in the IT communication network, which has greatly facilitated, not only the networking of the internal communication processes, but the integration with the external payment system gateways as well. CBS is also capable to process customer relationship management, treasury, centralized clearing operations, ATM application, electronic banking, management information system, internet banking, mobile banking, smart card operations, biometric ATMs, chip based electronic purse and such other customer convenient electronic devices.

Moreover, with the implementation of CBS and various other technology initiatives branches will become more efficient in their operations. They can interact and satisfy the customers providing them state of the art experience with latest technology. Hence technology has redefined banking system highlighting the significance of customer service.

Q. As an aftermath of the global financial crisis, do you see an alarming rise in NPAs for your bank? What are the sectors where you think NPA levels may rise phenomenally?

A. No, the impact of global financial crisis did not materially alter the status of NPAs in our bank. Through wellcoordinated and sustained monitoring efforts, the bank’s global gross NPAs have come down from 1.84 % to 1.27 % and net NPAs down from 0.47 % to 0.31 % during the year reflecting the robustness of asset quality. This is despite global advances recording a growth of 35 % in 2008-09. As far as our bank is concerned, the financial crisis did not impact asset quality.

Due to its likely spill over impact in 2009-10, we have taken proactive measures to step up monitoring on close and continuous basis on certain segments like retail loans, SME where we foresee more delinquencies. We are sure that our enhanced surveillance and monitoring system will be able to prevent any large-scale slippages during the current year too.

Q. What initiatives has your bank undertaken in the areas of Micro finance, Financial inclusion etc?

A. As part of our efforts for more inclusive growth, we have adopted certain villages for 100 per cent financial inclusion. Further popularizing ‘no-frill’ accounts, participating actively in government sponsored National Rural Employment Guarantee Act (NREGA) projects to reach out to more people, collaborating with service providers for introducing smart card palm held swipe systems to promote low scale banking in villages. We have host of micro finance products and are roping in more self-help groups to disseminate banking in the hinterland. Our sponsored Regional Rural Banks are also closely associated with micro finance and financial inclusion. We are also using the model of Business Facilitator and Business Correspondents to make banking available at affordable cost to the customers.

Q. State the current state of NBFCs in India? What was the impact of the going on downturn in the economy on your business operations?

A. Liquidity problems have eased – availability of credit has improved but the pick up in demand continues to be poor

Q. Most of the industries have been affected by the current downturn and also the default rate has been rising. In such a scenario, what kind of a recovery mechanism has been deployed by your company?

A. The System remains the same but the rigour / follow up has improved.

Q. Would you agree that NBFCs’ share in the overall retail credit disbursements has reduced over the years and that banks have achieved dominance in the retail segment? In your opinion, what were the factors which led to the demotion of NBFCs’ share?

A. This may not be true in all the areas. For example in Commercial vehicle financing still the NBFCs have an edge. Banks have consolidated their position by aggressive pricing and also by buying out assets from NBFCs.

Q. Though NBFCs face tough competition from banks but which are those features of NBFCs which provide them an egde over to banks?

A. Quick turnaround time. Individualised service and understanding their needs. NBFCs reach out to the customers at their door step and this may not be true in the case of Banks.

Q. The gloomed economic scenario has made banks reluctant in lending to NBFCs which has further dried up the sources of funds for the NBFCs. What steps or changes in regulations are you expecting the government to make in order to increase the liquidity condition.

A. This may not be fully true. NBFCs are in a position to access funds from Banks and the limiting factor will be the credit rating of the NBFC

Q. W hat are the challenges faced by the NBFCs? In your opinion, what steps should be taken by the government and RBI in order to provide sustained development of NBFCs in India.

A. In the area of recovery, NBFCs have a disadvantage as the SARFESI act is not applicable to them – This has to change. For the Asset Financing companies, Funds should be made available on a consistent basis at a viable levels from the Banking system.

Q. In your opinion, what would be the factors which would lead to the sustained growth of NBFCs in the long term? Do you think in the long term, there would be some change in the business model of the NBFCs due to strong competition of banks?

A. In the days ahead, NBFCs may be working closely with the Banks partnering them. NBFCs have their niche and Banks cannot replace the NBFCs in entirety. Business model of the NBFcs may change to the extent that NBFCs will have to ensure more revenue from the same customer by adding / offering other services – Eg., Cross selling

Q. State your outlook on the NBFCs for the next two years. Which of the industries would provide sustained and lucrative returns in the long term?

A. The outlook is linked to the growth in the economy. The Asset financing companies will have a stable growth in line with the economic growth. Industries where there could be opportunities are infrastructure financing, commercial vehicles, construction equipments, SMEs, etc.

Q. What are the key challenges before the Indian banking industry? And what measures should be adopted by the regulators and Banks to overcome them?

A. Monetary Policy has helped to lower interest rate and this is expected to act as a powerful stimulus for putting the economy back on the path of high growth. Lower interest rates on deposits may not hinder deposit growth because inflation is under control. Continued sluggishness in current deposits is a cause for concern. However interest rates cannot get very much lower than the prevailing rates because economy is projected to grow at about 7%. Secondly monsoon is playing truant and this is a matter of concern for economic growth this year. Retail prices are not coming down faster compared to wholesale prices and large liquidity available in the system may fuel inflationary pressures. In fact WPI itself is beginning to rise recently. Even internationally the problem of rolling back policies that pumped liquidity into the system has already surfaced. In these circumstances, reducing interest rates sharply may not be possible. Stability in rates and adequate liquidity will provide support to the real economy.

But in spite of these favourable conditions, credit demand is not encouraging. When lending rates were higher last year, demand for bank credit was at its peak. So lending rate is only one aspect of credit demand and lower rate by itself may not stimulate it. Secondly, credit is only one factor in business growth and unless demand for goods and services picks up significantly in domestic and export markets, credit demand cannot be sustained. In India domestic demand may not be a constraint, but export markets seem to remain sluggish. Global economic revival may stimulate further growth in Indian economy leading to greater demand for credit. As for banks, they face capital constraints, rising NPAs and high cost deposits contracted earlier and these affect their ability to reduce their lending rates substantially. Deposit rates have come down significantly and they cannot go down further because of inflation factors discussed above. BPLR is set to undergo some changes with the new Working Group in place. The recommendations of the Working Group on BPLR may be given effect from next year. Relaxation in capital and NPA norms will be helpful to banks.

Q. W hat are the key growth drivers for the Indian banking industry? What are the emerging trends in the Indian banking industry?

A. A growing economy provides the basis for vibrant growth in banking sector. Credit demand needs to pick up strongly from various sectors and the banks, as we saw above, are in a position to meet it. Focus is now shifting to manufacturing sector for economic growth and we are traditionally geared towards financing this sector. Union Budget now announced is expected to create a favorable environment for growth in personal and housing segments. Banks would take advantage of such a trend and cater to these segments. Technology is emerging as a major factor in banking industry in recent times. Branch banking is getting substituted in a limited way with transactions through other channels like ATMs. Debit cards are growing faster along with ECS credits and debits, thus replacing to a significant extent paper-based funds transfers. Financing personal segment has gained prominence in the recent period. Banks have diversified into areas like Mutual Funds, Insurance, etc. to augment their fee income. Greater overseas expansion is also taking place with globalisation advancing in the real economy.

Q. Do you believe that there is a need for consolidation in the Indian Banking industry? What according to you are the merits and demerits of consolidation?

A. There is need for consolidation in the Indian banking industry as it facilitates scale economy, besides avoiding duplication of efforts. It also enables greater expansion of business with stronger balance sheet. But consolidation of banks in our country is very complex since we have branch banking model. Even a bank of modest size has a few hundred branches which need to be rationalized when the merger takes place. Secondly, our banking is labour intensive even with higher level of automation and it flows from the branch model. Creating a single organisation by merging two entities in this scenario is a tough task. Transitional problems posed by large number of branches and work force have been tackled in the past and it can be undertaken, if the situation demands. However greater flexibility needs to be enjoyed by banks while the process of merger/take-over takes place.

Q. What role does technology play in your bank in terms of enhancing customer experience, and improving functional efficiencies?

A. Information Technology has evolved as the driver of business growth from its role as an enabler of Business Growth. The bank has introduced various innovative and customer centric IT products. The Bank has provided Automated Teller Machines (ATMs), Internet banking, Any Branch Banking (ABB), Centralised Banking Solution (CBS), Insta cards (nonpersonalised cards that are issued to customers at the time of opening of the account) , RTGS/ NEFT, SMS alerts etc. We are constantly striving to introduce innovative products that meets the rising expectations of the present day customers. Our bank is setting up an Internet Payment Gateway (on ASP Model) . Initially our bank’s debit cards will be accepted. We expect the Gateway to go live shortly. These along with other technology initiatives afford flexibility of time and reach and enhance the richness of customer experience.

Q. As an aftermath of the global financial crisis, do you see an alarming rise in NPAs for your bank? What are the sectors where you think NPA levels may rise phenomenally?

• The slippages may be on the same levels as that of last year.
• Real estate sectors may contribute higher slippages. If the real estate market does not improve it may affect Cash Recovery also, as sale of immovable property may be difficult in a depressed market.
• Slippages are also expected from non payments of Farmers’ share of Agricultural Debt Relief.
• Massive restructuring was done in the year 2009-10. A part of it may fail to non adherence of revised repayment programme. The budget reliefs may have a bearing on the improvement in the Cash flows.

Q. What initiatives has your bank undertaken in the areas of Micro finance, Financial inclusion etc?

A. Micro finance

Our Bank is actively participating in the SHG credit linkage programme.

Year 2008-09:

Bank has credit linked 64294 SHGs with a financial assistance of Rs. 7892.5 bn as against a target of 50000 SHGs. Cumulatively our Bank has so far provided financial assistance of Rs. 21626.8 mn to 292,507 SHGs.

Current Year 2009-10:

Upto May 09 (2 months) Bank has credit linked 2,964 SHGs with a financial assistance of Rs, 34.59crores as against a target of 50000 SHGs. Cumulatively our Bank has so far provided financial assistance of Rs. 2197.27 crores to 295471 SHGs.

Janashree Bima Yojana (JBY):

To provide insurance coverage to women members of SHG, our Bank has entered into an MOU with LIC to implement Janashree Bima Yojana (JBY). JBY is a social security scheme giving insurance coverage to the rural and urban poor living below poverty line. During 2008-09, our Bank has covered 84456 women members belonging to 8074 SHGs under Janashree Bima Yojana (JBY).

Financial Inclusion

No-frills Accounts & General Purpose Credit Cards (GCC):

As per the guidelines of RBI, our Branches have started opening no-frills accounts with simplified KYC norms. Our Bank has simplified SB account opening forms to facilitate opening of accounts as a faster pace. During the year 2008-09 our branches have opened 728894 no-frills accounts. Cumulatively our branches opened 931711 no-frills accounts upto May’ 09. Savings mobilised through these accounts is Rs.37.71 crores. Our Bank has issued 21317 GCCs till date.

Engagement Of Business Correspondents (Bc) And Business Facilitators (Bf):

With a view to accelerating the pace of financial inclusion our Bank had started engaging BC and BF in tune with RBI guidelines. Our Bank has engaged 3 Business Correspondents.

Smart Cards:

Banking services are being extended to villagers at their place through Bio metric Smart cards. Smart card banking is undertaken on a pilot basis at Kuthambakkam and Kameshwaram villages. 1609 smart cards were issued so far in both villages.

Road map:

To expand smart card banking solution for greater inclusive growth, our bank is in the process of selecting Technology / Service provider. Our bank will cover 100 branches under smart card banking before March 2010 and @ 100 branches per year for the next 3 years.

Q. What according to you can be done to give further impetus to the broking industry? Where do you see the broking industry three years down the line?

A. In India currently the cost of Trading (Impact cost) is very high due to the composition of very high rate of Securities Transaction Tax. If STT is reduced by the Finance Minister in the budget to be announced in the first week of July, then this would give a big impetus to the broking Industry as the turnover is likely to increase substantially resulting in increased depth and liquidity in the market.

Creating a vibrant and liquid spot and future bond market can be another step in the right direction which would give further impetus to broking industry as it would enlarge their service offerings. This step would also help in making India as an important international financial center. Steps like Introduction of Euro rupee, Pound rupee and Yen rupee contracts, allowing NRI’s and FII’s to participate in Indian currency exchanges and commodity exchanges. Introduction of options in commodities and currency exchanges, extension of trading hours are some of the steps which can be taken to give boost to the Indian financial markets and in turn the Broking Industry.

Three years down the line we see the broking industry as much matured and more sophisticated. We expect lot of consolidation happening in the industry and finally big broking houses would remain in the system, who can afford high cost of infrastructure and manpower. We expect the volumes to more than double from the present level three years down the line.

Q. Do you see the regulator’s decision to arm institutional investors with the Direct Market Facility (DMF) as detrimental to the broking industry?

A. DMF (Direct Market Facility) is provided by most of the International exchanges and the regulator’s decision to arm the institutional investors with DMF is a step in a right direction, as it will increase the comfort level and facilitate the faster execution trade for FII’s. In our opinion it is nowhere detrimental to the broking industry rather it will increase the transparency in the trading for FII’s.

Q. Your views on the emergence of new exchanges like SME, Indian Energy Exchange, MCX-SX etc in the country and how these new exchanges will impact the industry.

A. Emerging new exchanges like SME, Indian Energy Exchange, MCX-SX etc are in line with the emerging needs of the industry and a lot of potential is there for these exchanges to grow. These new exchanges will bring more competition, innovation and efficiency in the various trading platform they would offer.

Q. Is your company planning to enhance its distribution network across the country? What are the key regions that you would look at in order to expand your reach?

A. Yes, we have already reached to about 180 offices, in around 400 cities of the country and we are opening almost one office everyday in some part of the country. Currently we are focusing to increase our distribution reach in Western and Southern India.

Q. In line with the apparently positive market sentiments, do you see the IPO/primary market making a comeback in the near future (3-6 months)?

A. Normally, IPO markets starts picking up once the secondary market shows the definate sings of revival. Currently it appears, that the worst is over and market is in long term bull run and in our opinion the IPO/ primary market has started showing sings of revival as number of PSU’s and some of the companies are preparing for IPO’s and in next to 3-6 months, we should be seeing some of the these companies coming up with their initial Public Offerings (IPO’s).

Q. State the current state of NBFCs in India?

A. NBFCs are an integral part of India’s financial system and have been instrumental in delivering credit to those segments of the economy which have remained underserved by the banks and financial institutions (FIs). The significance of NBFCs in India is underscored by their contribution to the Government’s agenda of financial inclusion, for being a source of finance for un-organised and under-banked segments and for originating priority sector assets. NBFCs, alongside banks, have played a very useful role in funding India’s economic growth. In particular, NBFCs are the principal conduit for credit delivery for the micro, small and medium enterprises (MSMEs), and the backbone of the India Growth Story. In many ways, they have been leaders in financial product innovation and have played an effective role in funding economic growth, especially in terms of meeting financing needs of the under-served and unbankable class, small enterprises and rural segments of society.

In 2006, the Reserve Bank of India (RBI) re-classified the NBFCs based upon the companies’ financing of real / physical assets for productive / economic activity. They were put under 3 broad categories:

a) Asset Finance Company (AFC)
b) Investment Company
c) Loan Company

The NBFCs are further classified as deposit-taking and non-deposit taking companies. Companies with a net worth of Rs. 100 crore and above were further categorised as systemically important entities

Indian NBFCs for quite sometime have been undergoing a phase of consolidation. The number of NBFCs registered with RBI has declined from 12,968 in June 2007 to 12,809 a year later. The number of deposit taking NBFCs decreased to 364. However, though there has been a fall in public deposits of NBFCs, during this period their total assets increased significantly by Rs. 23,019 crore (a 32% rise) while their net owned funds increased by Rs. 3,974 crore (a
48% rise).

Q. What was the impact of the going on downturn in the economy on your business operations? Most of the industries have been affected by the current downturn and also the default rate has been rising. In such a scenario, what kind of a recovery mechanism has been deployed by your company?

A. During the third quarter of the last financial year, Given the fact that the economy had slowed down, we very appropriately decided to go slow on disbursements and focus more on maintaining a healthy portfolio instead. This strategy has proved to be extremely beneficial for us since through this move, we have been able to avoid risky assets on our book. It also provided us ample time to revisit our customers to affirm our trust in them, especially in times of economic downturn. And now that the economy is showing clear signs of recovery, we are hopeful that with the new government in power, the focus would be on bolstering activity in the infrastructure sector.

Q. Would you agree that NBFCs’ share in the overall retail credit disbursements has reduced over the years and that banks have achieved dominance in the retail segment? In your opinion, what were the factors which led to the demotion of NBFCs’ share?

A. NBFCs emerged as an important part of the Indian financial system and grew rapidly in the second-half of the ‘eighties and the first-half of the ‘nineties. However, the erstwhile lax regulations encouraged a lot of non-serious players to enter the NBFC business, mostly in the deposit taking business. The unhindered entry of numerous fly-by-night operators led to a massive shake-out in the NBFC sector during the late 90s. Depositors incurred huge losses and the credibility of the entire NBFC sector took a severe blow. Thereafter, RBI put in place tough regulations and the NBFCs which survived the shake-out emerged stronger. However, NBFCs still continue to play an important role in disbursement of retail credit. It is difficult to state whether the overall share of NBFCs has declined over the years or not, especially there being a big unorganised NBFC sector in operation. Bulk of financing requirement of non-corporate sector has been met by NBFCs.

Q. Though NBFCs face tough competition from banks but which are those features of NBFCs which provide them an egde over to banks?

A. NBFCs are able to fill the gap of supplying credit to retail customers in the relatively under-served areas and the fast growing proprietorship and partnership sectors. The ability of NBFCs to take quicker decisions, their better customer orientation and grass-roots knowledge of local market conditions have enabled them to carve a niche for themselves in the credit delivery business. And they are able to provide these services at competitive prices. A robust feedback mechanism, which was only possible because of their smaller size and more flexible approach compared to banks, helped them develop tailor made products matching specific needs of the segment being served while maintaining a favourable risk and reward ratio in their credit dispensation. It is therefore, not surprising that NBFCs, have time and again shown the way to banks as adaptive as well as efficient lending institutions through their core strengths of strong underwriting norms, penetrative market knowledge, cost-effective operations and highly personalised good quality customer service.

NBFCs have been pioneers on several fronts. Financing of small town truck operators with limited means for buying used trucks and equipment and tractor financing in less banked/unbanked areas has proved the agility and enterprise of the NBFCs. The NBFCs, other than serving the un-banked customers, also had a positive impact on some of the underlying sectors viz., auto sector, construction sector, etc. Their success in businesses which were earlier considered risky has actually encouraged the banks to follow suit.

NBFCs were quick to notice that repayment of such lendings has to be based on cash flows rather than the underlying asset. The banks had traditionally lent on the strength of the underlying asset and mostly ignored the timing and amount of cash flows while determining the product feasibility.

NBFCs also ventured into areas like retail asset backed lending, where they remained predominant for a period of time. With the large scale entry of banks, the situation has now changed but still NBFCs have not only sustained their own growth but are also complementing the growth of the banks by becoming their conduits for credit delivery through Portfolio Buyouts, Securitization and Acting as Channel Partners.

NBFCs have also played a pioneering role in the business of securities-based lending such as Loan against Shares (LAS), Margin Funding, Initial Public Offering (IPO) Financing, Promoter Funding, etc. These customized credit products have added liquidity and encouraged retail participation in public issues in particular and equity markets in general, resulting in better price discovery. A CRISIL analysis shows that timely availability of IPO financing has resulted in a substantial increase in subscription levels in IPOs, and broadbasing of equity markets.

Like their counterparts internationally, NBFCs in India also play a very significant role in the country’s economic development even though the support and nurturing they have received from the entire system is far less than in most other financial systems.

Q. What are the challenges faced by the NBFCs? In your opinion, what steps should be taken by the government and RBI in order to provide sustained development of NBFCs in India.

A. The principal challenges that NBFCs presently face are essentially on 3 fields :

a) Tax structure
b) Access to asset recovery facilities
c) Access to funding

Q. The gloomed economic scenario has made banks reluctant in lending to NBFCs which has further dried up the sources of funds for the NBFCs. What steps or changes in regulations are you expecting the government to make in order to increase the liquidity condition. In your opinion, what would be the factors which would lead to the sustained growth of NBFCs in the long term? Do you think in the long term, there would be some change in the business model of the NBFCs due to strong competition of banks? State your outlook on the NBFCs for the next two years. Which of the industries would provide sustained and lucrative returns in the long term?

A. With infrastructure creation emerging as a national priority, there is an urgent need to provide NBFCs, especially those into financing of infrastructure assets such as construction equipment (such as earth-moving equipment, material handling equipment, etc.) and general purpose industrial machines) and / or active in infrastructure project financing, a different framework of rules and regulations so that they can actively contribute to the process of speedy infrastructure creation. Recommendations for overcoming the hurdles that NBFCs face (as mentioned in Q 6) are given below:

(A) Tax Issues

(i) Direct Tax : Though the NBFC-AFCs are regulated by the RBI just like banks and other FIs, they are saddled with various taxation incongruities, unlike banks and other FIs. In this context, three vital Direct Tax issues need to be reviewed :

a) Section 194A (3) (iii) of the Income Tax Act

Banking companies and Cooperative societies engaged in banking business are exempted from the purview of section 194A of the I.T.Act. Therefore, the borrower is not required to deduct TDS out of the interest payment made to these entities. Since, this is benefit is not available to NBFCs, their margins and cash flow are severely affected. Therefore section 194A (3) (iii) of the I.T.Act, may be suitably amended to grant exemption from TDS on interest payment to
‘NBFC-AFCs’ also.

b) Section 194-I of the I.T.Act

Hire charges, Lease rents are also being subjected to deduction of income tax at source under section 194-I, besides being subject to Service Tax and VAT. Due to lower Net Interest margins in Hire-purchase/Lease transactions, such deductions make the entire gamut of Hire-purchase and Lease transactions unviable and has in effect killed a widely accepted method asset creation for MSMEs. Therefore section 194-I of the I.T.Act, may be suitably amended to exclude Hire-purchase/Lease transactions of Plant and machinery done by ‘NBFC-AFCs’.

c) Section 36 (1)(viia) of the I.T.Act

Under this section, provisions for bad and doubtful debts made by banks and FIs, following RBI guidelines, are allowed as a deduction to the extent of 7.5% of gross total income (applicable to all lending institutions) and additional 10% of aggregate of average rural advances (applicable to public sector lenders). The benefits under the section 36 (1)(viia) of I.T.Act may also be extended to NBFC-AFCs. This will provide them a level playing field vis-à-vis banks and other FIs.

(ii) Indirect Tax : Multiplicity of indirect taxes on various financial transactions acts as a severe deterrent mostly for the MSME infrastructure players. When it comes to procurement of assets like equipment by way of rent or finance (from NBFC-AFCs mostly), the same transaction gets taxed multiple times at both central and state authorities. Equipment rental is a typical example of such a transaction. As per the Service Tax Act, state VAT cannot be imposed on a rental transaction for which service tax has already been paid. Constitutionally and logically too, any transaction can either be a ‘Sale’ or a ‘Service’, but cannot be both. Thus, such treatment is causing huge harassment for players who are going for such mode of asset procurement. This affects the MSMEs all the more because they are not in a position to cough up the resources. Neither do they have the wherewithal to enter into litigation which will again be a timeconsuming process. They are basically left at the mercy of the tax authorities.

This issue needs to be addressed on an urgent basis. Effective co-ordination between Ministry of Finance at the Centre and the State Finance Ministers on this subject is therefore a must. An ideal platform for taking up this matter can be the high-powered Committee on VAT which is headed by Mr. Asim Dasgupta, Finance Minister of West Bengal. This forum looks after the implementation of VAT across states and regularly co-ordinates with Ministry of Finance at the Centre.

(B) Repossession Facilities

NBFC-AFCs find it extremely challenging to repossess assets when a loan goes bad. Repossession of construction equipment, in particular, is very problematic. The present situation needs to be addressed by bringing NBFC-AFCs under laws which equip banks and other FIs to deal with defaulting customers:

(i) Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act 2002 :

Banks and FIs have been notified under the Act, giving them the ability to move against defaulting borrowers and secure their assets. Subsequently, specified housing finance companies (HFCs), have also been notified under the act. NBFCs are the only segment of the financial sector that has not been notified under the Act. It is submitted that in order to protect interests of investors, NBFC-AFCs be brought within the purview of the SARFAESI Act.

(ii) Debt Recovery Tribunals (DRTs)

RBI had favourably considered access of NBFCs to DRTs and it was proposed that number of DRTs in the existing set-up be increased. This would fulfill a long felt need of the NBFC-AFCs and lead to speedier realisation of their dues. However, action on this front is still awaited.

(C) Funding
(i) External Commercial Borrowings (ECB)

Following the government decision to ban ECB access to banks and NBFCs in November 2003, the NBFC sector made numerous representations to the government so that the decision was reconsidered. Thereafter, the policy underwent several amendments. Infrastructure financing NBFCs are now allowed to access ECBs. However, there are certain conditions, mentioned below, which make ECB route difficult :

(a) ECB can be sourced only from multilateral / regional FIs and government owned DFIs.

(b) Infrastructure financing NBFCs are allowed to obtain ECB under the ‘approval route’.

The conditionalities are discussed in detail to highlight the inherent flaws :

(a) ECB from multilateral/ regional/ government owned development FIs only

As it is, presently there are very few lending agencies willing to invest have their unique set of problems. Institutions like International Finance Corporation (IFC) – the private lending arm of The World Bank Group and Asian Development Bank (ADB) have their elaborate appraisal procedures which take a long time from sanction to disbursement, many a time spanning over a period of one to two years. Regional lending organisations and government sponsored FIs like Germany’s KfW and Japan Bank for International Co-operation (JBIC) prefer lending to primarily those projects which would source inputs from the lender country. Such aspects often reduce the number of options from which ECB can be sourced.

In this backdrop, RBI should allow tapping ECB funds from reputed international banks and bilateral FIs. Making available a wider choice of lenders will also facilitate the borrowers to work out favourable loan terms and conditions.

(b) ECB under ‘approval route’ only

It is worthwhile to note that infrastructure building firms are allowed to access ECB under the ‘automatic route’. Thus, it is only logical to keep the ECB window open to both infrastructure building firms and infrastructure financing firms under the ‘automatic route’. Thus, infrastructure financing NBFCs will be better placed in servicing the credit needs of the MSME players in an expeditious manner.

(ii) Refinance Facility from IIFCL

The Indian Infrastructure Finance Corporation Ltd. (IIFCL) has been formed as a dedicated funding vehicle for providing long term funds to Indian infrastructure projects in India. IIFCL raises its debt from bilateral and multilateral institutions and in foreign currency through ECB. IIFCL’s borrowings are generally backed by sovereign guarantee. IIFCL has also been permitted to raise Rs. 30,000 crore through tax-free bonds for onward lending to infrastructure projects.

The resources thus raised are used by way of :

(a) long term debt
(b) refinance to banks and FIs for loans with tenor of more than 10 years
(b) any other mode approved by GoI

The Government wants to ensure that these funds are expeditiously disbursed and utilised in infrastructure projects. The MSMEs, spanning across urban and rural India, do not have access to institutional credit, nor are they in a suitable position to access external commercial borrowings (ECBs) of their own. NBFCs help bridge this gap by financing MSMEs, in a timely and efficient manner.

Timely and cheaper credit to these MSMEs is essential for the commercial viability of the infrastructure projects. Besides credit delivery, NBFCs can reach out to numerous MSMEs catering to large infrastructure projects across the country, which a single institution, like IIFCL, alone may not be in a position to achieve. Therefore, to expand the coverage of the funds and expedite credit delivery to infrastructure projects, government should extend refinancing facility to infrastructure financing NBFCs through the IIFCL window.

(ii) Tapping funds from Insurance companies and Provident Funds (PFs)

Funds from insurance and provident fund are long-term domestic funds. So far insurance and PF agencies have been allowed to invest in mutual funds. If government allows them to invest in infrastructure financing NBFCs, that would go a long way in addressing the asset-liability mismatch problem for this class of NBFCs, besides opening a safe long term investment avenue to Insurance companies and PFs. This would lead to a win-win situation for both.

Since Insurance companies and PFs look for safe long term investments to sustain their periodic payouts to small investors, by investing in infrastructure financing NBFCs, insurance companies and PFs can to not only get higher returns in the long-run but also sustained cash-flow. At the same time, infrastructure financing NBFCs would also have access to long-term funds and thus would be in a position to enhance their activities in the field of infrastructure financing.

Government should allow insurance firms and provident funds to invest in infrastructure financing NBFCs.

(iii) Special Credit Lines and high cost of funds

In order to enable cheaper loans to MSMEs, banks and FIs may be advised to provide credit lines and funds to NBFCs at concessional rates by classifying it under ‘priority sector lending’.

Although the Government has been asking the banks to reduce rate of interest on lending to NBFCs, the effective cost of borrowed funds continue to remain exorbitantly high, because the banks charge a high up-front fee and processing fee on loans disbursed to NBFCs, thereby on-lending cost to MSMEs also become very high.

In order to enable cheaper loan to MSMEs, we humbly suggest that, banks may be requested to:
a) charge maximum interest rate of PLR + 1% on loans to NBFCs and,
b) put a cap on upfront fees, processing charges, and all other charges on loans to NBFCs. (say 0.1% on the sanctioned loan amount, with a ceiling of Rs.2 lakh).

Q. The financial global turmoil had some impact on most sectors in India. According to you, how badly was the Indian Insurance industry impacted and which are your key business areas that have witnessed a slowdown?

A. I would say that the financial global turmoil had minimal impact on Indian insurance industry. If you see fall in premium in other than motor and health segment, it is due to de-tariffing factor mainly.

Q. Insurance in India is a big opportunity especially with the large population and untapped potential. What according to you are going to be the key growth areas in the near future? Any measures taken by you to ensure vast growth in these segments? Also, what about your efforts in rural India?

A. The large population of India, especially the middle income group is giving us a good opportunity to tap health insurance premium on the one side and also to serve this section of the society with dedication.

As regards the people under Below Poverty Line, the Government is taking various steps to insure them and insurance companies are being involved in it. We are involved in implementing Rajiv Aaarogyasri Community Health Insurance Scheme in Andhra Pradesh and also 5 Districts in Haryana under RSBY scheme.

Q. In the early years insurance companies face huge cost over runs. How is your company placed with regards to this aspect? What are the other challenges faced by the insurance industry?

A. When you want to spread the wings, when you want to have more number of branches, naturally, substantial amount will have to be spent. This is something which cannot be avoided whether it is STAR or any other Company.

Q. Higher business growth requires high level of solvency margin and capital infusion on a regular basis is necessary. What are the ways considered by you to inject additional capital? Are there alternatives that you suggest the industry should move towards?

A. Yes. It is true that when the premium grows, you have to bring in more capital and we are no exception. This year we have injected additional capital and ensure adequacy of solvency margin. Besides, it increased our capacity to do more underwriting in the future.

Q. In recent times, the private sector has proved vital in facilitating the sectors growth. What are the measures taken by you to exhibit strong growth amidst the fierce competition?

A. I would not agree that private sector alone provide in facilitating the sectors growth. Even today, it is to be understood that Life Insurance Corporation of India in Life, 4 Public Sector Insurance Companies in general insurance are playing a very major role. As regards health is concerned, a consensus is emerging amongst the general insurers to look into the burning cost and quote accordingly.

Q. What is your product USP/ strategy that sets apart your company from the rest?

A. Our company has got 24 x 7 Toll Free help line to give medical advise and also we are in constant communication with our policy holders through our health magazine which are unique to our company. I don’t think any other insurance company in India is having such value addition.

Q. Growth in the Insurance Industry is largely dependant on product innovation backed by a strong distribution network. How well is your company equipped with this kind of work force/ infrastructure? Do you see some major hiring in the near future (6 months)? What are your expansion plans in terms of number of branches?

A. We have on date about 144 branches and we may consolidate our business with the existing set up and therefore no need for new Branches to be opened.

Q. How well has your company tapped the bancassurance channel of distribution? Are there are other new avenues (like online retail of insurance) that you would like to tap in order to enhance your marketing and distribution network?

A. As regards the bancassurance, as you are aware, since ours is a mono-line company, we are in a dis-advantageous position. We are looking forward to the Regulator to open up this channel for more than one company which will be useful for us.

Q. The government under the IRDA has played a crucial role in the development of the insurance sector over the past decade. However, what according to you should be the predominant change made by the government with respect to its laws in order to provide further impetus to the growth of the insurance industry in India? What medium or long-term issues in the sector do you want that the regulator to address?
A. Capital is a problem. I am of the view that if 49% FDI is allowed, this problem may be tackled. We should complement, at this juncture, the IRDA which has really done an excellent work and ensuring that this industry is functioning in an orderly manner.

1. What are the attributes which differentiates your fund house from other fund houses? What kind of benefits do you provide so that an investor would channelize his money into your fund?

A. We were the first to introduce the concept of mutual fund investment in India and take pride in proclaiming having taught the language of investment to the people of India.

e.g. We were the 1st to introduce ULIP way back in the year 1971. Similarly the 1st pure equity fund in India was UTI Mastershare which was launched by us in 1986. In that sense we have been a thought leader by introducing products which fulfil the financial needs of the customer.

Our focus has always been retail, and hence has always developed products catering to this segment of mutual fund investors. We have a product which satisfies the varied needs of every category of investors. To ensure proximity to our investors we have a wide distribution network which is spread across the length and breadth of the country. With more than 125 branches and our CR / CA network we are present in more than 460 districts of India. Our IFA network has more than 36,000 AMFI certified financial advisors spread across our country.

UTI Mutual fund offers its investors varied choices of schemes to choose from depending on his risk–return profile and investment horizon. Depending on his financial goals he can structure a customized portfolio. He can also diversify his investments across asset classes–equity, debt or gold by investing in our various products.

UTI mutual fund provides various facilities to its investors like Systematic Investment Plan- to invest in a disciplined manner, Systematic Transfer plan - to switch over to equity funds in a disciplined way, trigger facilities to realise profits or cut losses at preset levels. One can choose from various convenient modes to invest - like investing online without the hassles of paperwork or through bank ATMs.

Q. With the current economic slowdown and sluggish capital markets wherein investors have become cautious, what kind of investment did you execute to provide fair returns to your investors?

A. The fundhouse has been conservative in its investment decisions. Our conservative stance and experience acquired over different market cycles has enabled us to create wealth for our investors over long term. At opportune occasions we have booked profits and distributed the same by way of dividends. Since 2003 we have distributed more than Rs. 88 bn of wealth as dividends to our investors. Similarly you might like to know that as cheme like UTI Mastershare has consistently rewarded its investors every year with dividends.

Q. In your opinion from which type of a scheme/fund do you see maximum growth coming in?
A. It has been proven that equity assets have outperformed other asset classes over a period of time. Depending on one’s financial needs, one has to have a judicious mix of funds investing in different asset classes in one’s portfolio.

Q. How do you see the industry growing and developing in the next two years? What measures should the government and SEBI undertake on order to boost the growth of the industry?

A. Though the assets under management of the mf industry showed a decline due to the market conditions, there has been a growth of around 28% over the last 3 and 5 years. We expect it to grow further in the coming years. To ensure systematic growth of the industry, it is imperative that there exist uniform regulations across financial sectors for investment products and there is an equitable regulatory structure.

Penetration level of mutual funds in India is presently very low. If we need to propagate the advantages of investing through mfs we require initiatives at the policy level which would promote financial literacy. This could include introduction of modules even in school curriculums.

Today an investor has multiple choices. However most don’t make informed decisions while investing. It is essential that we partner with non-profit organizations including NGOs as well as media owners across mediums to promote investor awareness. This will help us penetrate to the hinterland of India.

Q. The current economic slowdown has impacted significantly the returns on investments. What do you think were the main factors which led to the slump in the industry and fall in the value of AUM?

A. The global meltdown had its repercussions in Indian equity markets too. Hence, the returns under domestic equity funds took a beating last year. More than equity it was the redemptions by corporates in the debt segment which hurt the industry hard. The drying up of liquidity in the months of October and November’08 led to huge redemptions. Retail investors however displayed a great deal of maturity and were investing at every decline. With the formation of a stable government, Indian markets have rallied and so have the equity assets under management. With global economies recovering and investment sentiment improving, we expect the retail participation to improve further in the days ahead.

Q. Has more exposure to debt funds provided a cushion to the fund houses? How long do you think returns from these funds would be sustained?

A. There is always a set of investors both individuals and non-individuals who find the wide variety of debt products appropriate to their risk-return profiles as well as their liquidity requirements. Therefore, debt funds will always be in favor. However, for a fund house to be profitable it would be the stickiness of AUM and the mix of assets in its portfolio that would matter rather than any particular asset class. Debt funds continue to give returns which are atleast 100-150 basis points more than the fixed income instruments of similar investment horizon.

Q. What is your stance on the position of the stock market in the next 12 months? Do you think the fund houses would increase their exposure subsequently to the equity fund in the near future?

A. It is the investors who decide which asset class to invest and add to the aums of mutual funds. Mutual fund would definitely put in efforts to garner more assets under equity as they are mutually beneficial to both AMCs and investors in the long run - to the investors by means of high returns and to AMCs by way of high fees. One has to evaluate returns of equity fund over a long investment horizon say 5 or 7 years and not on short investment horizon.

Q. Do you think rural market has huge growth potential for the mutual fund industry? What steps will you be take in order to reach to these markets?

A. Mutual funds have low penetration in rural and semi-urban markets and there is great potential for them to grow in these areas. We have expanded our branch network to tier II and III cities to reach out to more rural investors. These markets require a brick and mortar structure to expand and our financial centres support the efforts of our IFAs in promoting our schemes. Marketing tie-up with Post offices and PSU banks also enables us to reach out to investors in semi-urban and rural areas. People are comfortable in accessing and using the internet and emerging mediums like the mobile platforms for investments. We hope to enhance the usage of these mediums for transaction processing also in the near future.